Prospect Capital: Are Insiders Backing Up The Truck?
Charles Sizemore | Dec 14, 2014 01:58AM ET
Prospect Capital Corporation (NASDAQ:PSEC) got off to a rough start this month with a dividend cut. Prospect Capital cut its dividend to 8.33 cents per month from 11.1 cents. But even after the reduction, PSEC sports a dividend yield of 12.1%. Not bad.
A 12% dividend is nothing to take lightly. Given that U.S. stocks are priced to deliver flat returns for the next 7-10 years, it’s never been more important to get paid in cold, hard cash.
But if you really want to know why I’m on Prospect Capital, take a look at the following chart of recent insider buys:
In the month of December alone, the Prospect Capital’s chief executive officer, chief financial officer and chief financial officer bought a combined 548,200 shares for over $4.8 million. Clearly, none were particularly upset about the dividend cut.
The December buying, while a fantastic vote of confidence following Prospect Capital’s dividend cut, was by no means an isolated event. Year to date, company insiders have plowed a combined $11.2 million dollars into Prospect Capital’s shares. And I should emphasize that these are open-market purchases made with the insiders’ own money, not executive stock options.
As an investor, I like to see management with skin in the game. A CEO that plows millions of his own dollars into his company is a CEO that is dedicated to the cause. And while this alone does not automatically make a stock a buy, it certainly gives me a lot more confidence to ride out any short-term volatility.
I recommend you follow the insiders and accumulate shares of Prospect Capital. The company’s insiders are not particularly good market timers; some of their recent buys are down a good 20% from their purchase price. But I expect this to be a wildly profitable investment over a 3-5-year time horizon. I expect investors to double their money in Prospect Capital in the next five years, while they might break even at best in the broader markets.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.